PULSO ESTRATÉGICO 2014

Palacio de Hierro: Service

José María Blanco - CEO of Palacio de Hierro

About Gapso

According to research conducted by Accenture, it has been observed that Mexico’s GDP can be strengthened through new technologies such as a strategic channel for stimulating consumption. Given this reality, how can digital channels be used to stimulate interaction with customers?We’re preparing ourselves for this big challenge by starting with the incorporation of digital infrastructure, which will lead us to the future of our business. We need to make a complete change: those who don’t will be left behind within a few years. At Palacio de Hierro, we’re incorporating digital infrastructure on several fronts.

Internally, we’re using digitalization to become a more agile and efficient organization, using mobile devices that enable our collaborators to interact with the business wherever they are. How does integrating such a robust infrastructure help us? It helps us to make better decisions faster. To make them basing ourselves on knowledge and information. Palacio has become a company that operates online.

Externally, we’re focusing on e-commerce, social networks and interactive portals; seeking to generate consumption which is additional to that in our stores. This increase in digital technology also depends on consumer culture: people need to be more confident about paying using their card online. That will come slowly; you’ve got to give it time.

As consumers become more comfortable with paying online, digital consumption will be stimulated. What we’ve seen is that there’s a lot of people who see a product on the Internet, analyze it, compare it, and so on, but who come to Palacio to buy it, because consumers still need to be educated on the use of payment methods.

How can sales be stimulated from the traditional point of view, but also using digital technology, to attract these new generations who no longer want to have to travel in order to shop?There is definitely a new generation of consumers. Studies have been carried out, in Europe in particular, which have found that young people are no longer going to department stores because that was where their parents used to go. They associate them with the past. But we also see that these young people go back to department stores with them when they get married and have children, so the cycle of interaction between the traditional and the digital starts over, and vice versa. We’re working on capturing these new consumers using the great reputation our brand, Palacio de Hierro, has, which is known worldwide.

Brands have also seen that, as producers, they like to be in direct contact with their consumers in order to innovate, and they have found in digitalization that direct link with them. Should brands develop digital know-how in department stores?Yes, because even though the product in the store and the one online are the same, they can’t get mixed up. You have to have stock for your site and stock for your store. Yes, at a given moment they may support each other, but as an exception, not as business management. We have a special warehouse for online sales. Today we sell much more in stores, but we don’t know about tomorrow. The future definitely lies in electronic sales.

Another point where the Internet really helps a chain like ours, which has 11 Palacios and can’t easily access a national market, is that through online sales we can extend our geographical reach. We’ve identified many cities we want to enter by means of the Internet. They’re medium-sized cities with a significant presence of the wealthy middle class, and it would be a great opportunity to bring the great experience of shopping at Palacio to them through online sales.

So, can we say that Palacio’s geographical expansion will be digital?Yes, and it's something that goes for all retailers, not just for us. If you’re not on the Internet, you’re out of the game. We have stores in Mexico City, Monterrey, Guadalajara, Villahermosa and Puebla. And we’re entering Cancun and Acapulco with the concept of Boutique Palacio. So yes, we can say that our geographical expansion will be digital, because that's one of our goals. We’re in the process of transformation towards digital commerce. Either we do it, or somebody else will.

What is the Mexican consumer like, from Palacio’s experience? How might we characterize them?They’re consumers who know a lot about brands, who have traveled...and that's been of great help to us. Because before, consumers who traveled had to shop abroad, because those products couldn’t be found here. But now they see those products in Paris or New York and they can decide to buy them here, at Palacio de Hierro. They also know that if they have a problem with their product, we're going to fix it for them here; if something is defective, we’ll change it. All of that has helped us a lot. If the knowledgeable, traveled Mexican consumer is helped to shop in their own country, they prefer to do so here. That’s perfectly logical: if I'm in Milan and I like a suit by a specific brand, what’s the point of me buying it there if I have it in Mexico and they will also adjust it so that it fits me perfectly?

Online service must be impeccable, because otherwise it doesn’t work. If I buy something online at Palacio, and after two months I still haven’t received the item, I lose all trust. That’s why all our supply chain processes must be integrated so that we can serve our digital customers in the same way as we serve our customers on the sales floor.

In digital sales, the battle is in the price. What’s Palacio de Hierro’s strategy for differentiating itself?Service, service, service: there’s no other way. And avoiding not following through, or the "it’s out of stock.” If a product’s out of stock, why offer it on the site? I think that's the future. Those who shop at Palacio are the most digital of all, the most traveled, and those who compare and demand the most.

I remember a conversation I had a long time ago with Alberto Baillères, our President, when I asked him what he wanted from Palacio de Hierro. He said: “That’s very simple. Palacio deals with the tip of the economic pyramid, so it can’t be the store that sells the most, or the one that has the most branches. But here’s what we can do: we can be the best store."

And the best store is determined by the best brands. How can those brands that are also looking for this direct digital interaction be attracted?You have to negotiate with them. The brands we have online are there because we negotiated with the supplier. That supplier gave us permission to offer their products online. There are some who don’t give you that permission because they say, "I'm the only one in this channel.” That's another competition, and it depends on the digital systems each company has.

One of the department store’s big weapons is visual merchandising. It’s what makes people come back: the mannequins, the small details, the decor. That’s why one of our slogans is "the best shopping experience in Mexico." That’s precisely what we have to carry over to the digital - that shopping is a complete digital experience. For this reason, we’ve acquired cutting-edge technology so that we can provide the best images and the best browsing experience, in keeping with what our consumers demand.

We need to speed up in order to enter the digital market, because that’s the future of the retail industry, whether you’re talking about the supermarket or the luxury department store. We can’t turn a blind eye to online sales. It’s not something that’s going to come in the future, it’s already here.

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